July Plan
On July 12, 2012, management presented the July Plan, consisting of financial projections for the Company through fiscal year 2016, to the Board in connection with the Company’s routine internal planning processes and not in connection with any potential transaction involving the Company.
Management prepared the July Plan in a process that included input from the Company’s individual business segment leaders as to their best estimates of the future financial performance of their respective business segments in light of its then-current understanding of the industry and competitive dynamics, key strategic and investment priorities and other business initiatives. When management presented the July Plan to the Board at the July 12, 2012 meeting, management also updated the Board on the Company’s weaker than expected performance in the second quarter, the effects of which were not reflected in the July Plan. Consistent with the Company’s internal planning procedures, Board approval of the July Plan was not solicited, nor was the July Plan approved by the Board.
The July Plan was made available to the Special Committee, the Special Committee’s advisors and the Company’s financial advisor, in addition to the Board. Certain information contained in the July Plan was made available to the Parent Parties and other potential acquiring persons.
The following presents in summary form the financial projections in the July Plan:
July Plan
| Fiscal Year Ended | ||||||||||||
| January 31, 2014 |
January 30, 2015 |
January 29, 2016 |
||||||||||
| (in billions) | ||||||||||||
| Revenue |
$ | 66.0 | $ | 69.5 | $ | 74.0 | ||||||
| Gross margin (non-GAAP)(1) |
$ | 15.6 | $ | 16.7 | $ | 18.1 | ||||||
| Operating income (non-GAAP)(2) |
$ | 5.6 | $ | 6.2 | $ | 7.0 | ||||||
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| (1) | Gross margin (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
| (2) | Operating income (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
September 21 Case
As discussed under “—Background of the Merger” beginning on page 20, certain members of the senior management of the Company began preparing updated projections that came to be known as the “September 21 Plan” or the “September 21 Case.” Mr. Dell did not participate in the preparation of the September 21 Case, although the Special Committee authorized Mr. Dell to review it following the presentation of the September 21 Case to the Special Committee on September 23, 2012. The September 21 Case was intended to provide the Special Committee with senior management’s updated estimates as to the Company’s future financial performance in light of circumstances that had changed since the July Plan was prepared. Senior management initially proposed to update its estimates only to take into account changes in its estimates based on actual and
projected results for fiscal year 2013, but, at the Special Committee’s request, management also updated its estimates as to the other fiscal years covered by the July Plan. At the suggestion of J.P. Morgan, senior management also included projections for fiscal years 2017 and 2018 in order to provide potential bidders with sufficient information to conduct customary valuation analyses.
The September 21 Case was prepared in a process that was off-cycle from the Company’s routine internal planning processes and, with the Special Committee’s knowledge, was prepared by senior management (without the participation of Mr. Dell). The September 21 Case did not reflect the updated perspectives of the Company’s individual business segment leaders, who at the time were not aware of a possible transaction involving the Company, and therefore did not necessarily reflect such business segment leaders’ views as to the assumptions and projections reflected in the September 21 Case (which may have been more or less optimistic than senior management’s views). Board approval of the September 21 Case was not solicited, nor was the September 21 Case approved by the Board.
An initial version of the September 21 Case was presented to the Special Committee at a meeting held on September 13, 2012, and a revised version of the September 21 Case was presented to the Special Committee at subsequent meetings held on September 21 and 23, 2012, as described under “—Background of the Merger” beginning on page 20. After those meetings, senior management continued to refine its expectations as to the Company’s working capital needs and its estimates as to certain non-operating items reflected on the Company’s income statement, in each case assuming that the operating items reflected on the Company’s income statement were as projected in the September 21 Case. These refinements were reflected in the final September 21 Case. Senior management’s projections as to operating items such as revenue, gross margin and non-GAAP operating income were not affected by these refinements.
The September 21 Case, while not intended to replace the July Plan, did reflect senior management’s view at the time as to adjustments that needed to be made to the July Plan in order to reflect circumstances that had changed since the preparation of the July Plan. Specifically, senior management made downward adjustments to its estimates as to growth rates and gross margin rates for certain of the Company’s business segments and as to operating expenses, which collectively were viewed by senior management as the most significant drivers of the Company’s future financial performance.
The September 21 Case was made available to the Board, the Special Committee, the Special Committee’s advisors and the Company’s financial advisor. Certain information contained in the September 21 Case was also made available to the Parent Parties and other potential acquiring persons.
The following presents in summary form the financial projections in the September 21 Case:
September 21 Case
| Fiscal Year Ended | ||||||||||||||||||||
| January 31, 2014 |
January 30, 2015 |
January 29, 2016 |
February 3, 2017 |
February 2, 2018 |
||||||||||||||||
| (in billions) | ||||||||||||||||||||
| Revenue |
$ | 59.9 | $ | 63.2 | $ | 66.6 | $ | 68.0 | $ | 69.6 | ||||||||||
| Gross margin (non-GAAP)(1) |
$ | 13.7 | $ | 14.6 | $ | 15.3 | $ | 15.6 | $ | 16.0 | ||||||||||
| Operating income (non-GAAP)(2) |
$ | 4.2 | $ | 4.9 | $ | 5.3 | $ | 5.4 | $ | 5.5 | ||||||||||
| Net income (non-GAAP)(3) |
$ | 3.2 | $ | 3.7 | $ | 4.0 | $ | 4.1 | $ | 4.2 | ||||||||||
| Operating cash flow(4) |
$ | 3.8 | $ | 4.2 | $ | 4.7 | $ | 5.4 | $ | 5.5 | ||||||||||
| Capital expenditures |
$ | 0.6 | $ | 0.6 | $ | 0.6 | $ | 0.6 | $ | 0.6 | ||||||||||
| Depreciation |
$ | 0.6 | $ | 0.6 | $ | 0.6 | $ | 0.6 | $ | 0.6 | ||||||||||
| (1) | Gross margin (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
| (2) | Operating income (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
| (3) | Net income (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs and associated tax impact. |
| (4) | Senior management’s projections as to operating cash flow resulted from its refinements to working capital items, as described above, which resulted in an overall increase in operating cash flow projections. |
Fiscal Year 2014 Plans and Budgets
In connection with the Company’s routine planning procedures, at the commencement of each fiscal year, management develops internal financial plans and budgets for the upcoming fiscal year. During the initial stage of the planning process, each of the Company’s individual business segments develops a plan and budget. Those plans and budgets are then reviewed by senior management in a centralized planning process that results in the development of a Company-wide internal operating plan (often called the “Internal Plan”). The Company uses the Internal Plan to establish targets, on a granular basis, for each of its business segments consistent with that segment’s strategic objectives. Those targets reflect performance levels that are higher than senior management’s expectations regarding the most likely level of financial performance. In addition, senior management prepares a consolidated financial forecast for the Company’s business segments reflecting a more conservative view of the Company’s financial performance (often called the “Board Case”), which is approved by the Board and used to establish performance-based compensation targets for management.
As part of the planning process, management presents preliminary versions of the Internal Plan and the Board Case to the Board in January and presents final versions of the Internal Plan and the Board Case to the Board in March. The final versions of the Internal Plan and the Board Case take into account, among other matters, the Company’s actual performance during the fourth quarter of the prior fiscal year, while the preliminary versions presented in January rely on fourth quarter estimates.
On January 18, 2013, management presented preliminary versions of the Internal Plan and the Board Case for fiscal year 2014 (the “Preliminary FY14 Internal Plan” and the “Preliminary FY14 Board Case,” respectively) to the Board. Mr. Dell did not participate in the presentation or the meeting. Management prepared the Preliminary FY14 Internal Plan based on assumptions and projections for fiscal year 2014 that were substantially consistent with those reflected in the September 21 Case. However, in the Preliminary FY14 Internal Plan, management lowered its estimates of projected revenue, gross margin and operating income to reflect the Company’s anticipated fiscal year 2013 performance, as well as a weaker industry outlook given developments since September 2012, including weaker than expected customer demand, reductions in PC shipment forecasts by industry experts and increasing pressure on PC gross margins. The Preliminary FY14 Board Case reflected projections as to revenue, gross margin and operating income that were lower than the amounts projected in the Preliminary FY14 Internal Plan, primarily as a result of management’s making more conservative assumptions as to the projected performance of the Company’s EUC business in light of the uncertain PC industry outlook.
The Preliminary FY14 Internal Plan and the Preliminary FY14 Board Case were provided to the Special Committee and the Special Committee’s advisors, in addition to the Board. The presentation materials provided to the Board that described the Preliminary FY14 Internal Plan and the Preliminary FY14 Board Case were also made available to the Parent Parties and other potential acquiring persons and provided to Blackstone on February 27, 2013.
On March 7, 2013, management presented (without the participation of Mr. Dell) its proposed versions of the Internal Plan and the Board Case for fiscal year 2014 to the Board. The following presents in summary form the financial projections for fiscal year 2014 in the Preliminary FY14 Internal Plan and the Preliminary FY14 Board
Case, as well as the financial projections in the Internal Plan and the Board Case that were presented to the Board on March 7, 2013:
| Preliminary FY14 Internal Plan |
Preliminary FY14 Board Case |
Internal Plan as of March 7, 2013 |
Board Case as of March 7, 2013 |
|||||||||||||
| (in billions) | ||||||||||||||||
| Revenue |
$ | 59.9 | $ | 56.0 | $ | 59.9 | $ | 59.0 | ||||||||
| Gross margin (non-GAAP)(1) |
$ | 13.6 | $ | 12.7 | $ | 13.2 | $ | 13.0 | ||||||||
| Operating income (non-GAAP)(2) |
$ | 4.1 | $ | 3.7 | $ | 3.7 | $ | 3.3 | ||||||||
|
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| (1) | Gross margin (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
| (2) | Operating income (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
In the course of their review of the Board Case, members of the Board raised concerns about the increase in projected revenue compared to the Preliminary FY14 Board Case, as well as the achievability of the projections in the Board Case more generally, in light of the significant and increasing uncertainty surrounding the prospects for the PC industry in general. It was decided that management should work with Shantanu Narayen, the chair of the Leadership Development and Compensation Committee to consider more conservative sensitivities in light of the uncertain PC industry outlook and develop a final proposal for the Board Case for fiscal year 2014. Thereafter, management presented a more conservative version of the Board Case. The Board did not request that management make any refinements to the Internal Plan. The Internal Plan as presented at the March 7, 2013 meeting and the Board Case as revised after that meeting (the “Final FY14 Internal Plan” and the “Final FY14 Board Case,” respectively) were approved by the Board by unanimous written consent as of March 20, 2013.
The Final FY14 Internal Plan included lower projections as to gross margin and operating income than the levels included in the Preliminary FY14 Internal Plan due to, among other factors, increased margin pressure experienced by the Company in the fourth quarter of fiscal year 2013 and the first month of the first quarter of fiscal year 2014, particularly with respect to its EUC business, and management’s updated expectations as to margin rates for fiscal year 2014. Those and other factors, including decisions to continue to invest in strategic priorities despite lowered gross margin projections, resulted in the Final FY14 Board Case.
Because the Final FY14 Internal Plan and the Final FY14 Board Case were prepared after the execution of the merger agreement, neither was reviewed by the Board, the Special Committee, the Special Committee’s advisors or the Company’s financial advisor in their respective consideration of the merger. The presentation materials provided to the Board that described the Final FY14 Internal Plan and the Final FY14 Board Case were made available to the Parent Parties and other potential acquiring persons after the plans were presented to the Board in March and provided to Blackstone on March 31, 2013.
The following presents in summary form the financial projections for fiscal year 2014 in the Final FY14 Internal Plan and the Final FY14 Board Case:
| Final FY14 Internal Plan |
Final FY14 Board Case |
|||||||
| (in billions) | ||||||||
| Revenue |
$ 59.9 | $ 56.5 | ||||||
| Gross margin (non-GAAP)(1) |
$ 13.2 | $ 12.5 | ||||||
| Operating income (non-GAAP)(2) |
$ 3.7 | $ 3.0 | ||||||
|
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| (1) | Gross margin (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
| (2) | Operating income (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
BCG Forecast
As discussed under “—Background of the Merger” beginning on page 20, the Special Committee retained BCG to assist the Special Committee in its assessment of strategic alternatives available to the Company. BCG was engaged solely to offer its views to the Special Committee, and not for the purpose of public disclosure or the solicitation of proxies. In the course of its work for the Special Committee, BCG developed the BCG Forecast, which provided the Special Committee with an independent financial forecast for the Company. The BCG Forecast represented the views of BCG based on its knowledge of the Company and the markets in which the Company operates, its expertise and experience as a management consultant and its discussions with the Company’s management.
As discussed under “—Background of the Merger” beginning on page 20, BCG presented a preliminary version of the BCG Forecast to the Special Committee on January 2, 2013, which it subsequently refined. It presented the refined version to the Special Committee on January 15, 2013 and to the Board on January 18, 2013. The BCG Forecast was not made available to the Parent Parties or any other potential acquiring persons prior to the signing of the merger agreement.
The BCG Forecast consisted of a base case forecast for the Company (the “BCG Base Case”), as well as forecasts reflecting the incremental effect of certain management initiatives and market sensitivities on the BCG Base Case. The BCG Base Case was a forecast based on the current business mix and geographical distribution of the Company’s portfolio, taking into account, among other factors, industry prospects and the Company’s competitive position within the industry. BCG then considered the effect of potential phased productivity cost reductions, assuming in one case that 25% of such reductions (representing reductions that could be achieved through specific potential initiatives identified by either management or BCG) would be attained (the “BCG 25% Case”) and in another case that 75% of such reductions (representing non-specific target percentage cost reductions in the Company’s business) would be attained (the “BCG 75% Case”). In addition, BCG considered the results of initiatives to increase market share for the Company’s EUC business, particularly in emerging markets; and to increase the effectiveness of the Company’s sales force. BCG also considered the potential effect of market sensitivities on the BCG Base Case, including the impact of both a positive and negative outlook on both the Company’s EUC business and enterprise solutions business.
The following presents in summary form the financial forecasts in the BCG Base Case, the BCG 25% Case and the BCG 75% Case:
BCG Base Case
| Fiscal Year Ended | ||||||||||||||||
| January 31, 2014 |
January 30, 2015 |
January 29, 2016 |
February 3, 2017 |
|||||||||||||
| (in billions) | ||||||||||||||||
| Revenue |
$ 56.4 | $ 55.5 | $ 55.1 | $ 54.3 | ||||||||||||
| Gross margin |
$ 12.9 | $ 12.6 | $ 12.5 | $ 12.3 | ||||||||||||
| Operating income (non-GAAP)(1) |
$ 3.4 | $ 3.3 | $ 3.2 | $ 3.0 | ||||||||||||
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| (1) | Operating income (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
BCG 25% Case(1)
| Fiscal Year Ended | ||||||||||||||||
| January 31, 2014 |
January 30, 2015 |
January 29, 2016 |
February 3, 2017 |
|||||||||||||
| (in billions) | ||||||||||||||||
| Revenue |
$ 56.4 | $ 55.5 | $ 55.1 | $ 54.3 | ||||||||||||
| Gross margin |
$ 12.9 | $ 12.8 | $ 12.8 | $ 12.6 | ||||||||||||
| Operating income (non-GAAP)(2) |
$ 3.4 | $ 3.7 | $ 4.0 | $ 3.8 | ||||||||||||
|
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| (1) | The BCG 25% Case assumes that 25% of the productivity cost reductions described above would be attained. |
| (2) | Operating income (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
BCG 75% Case(1)
| Fiscal Year Ended | ||||||||||||||||
| January 31, 2014 |
January 30, 2015 |
January 29, 2016 |
February 3, 2017 |
|||||||||||||
| (in billions) | ||||||||||||||||
| Revenue |
$ 56.4 | $ 55.5 | $ 55.1 | $ 54.3 | ||||||||||||
| Gross margin |
$ 13.0 | $ 13.1 | $ 13.4 | $ 13.1 | ||||||||||||
| Operating income (non-GAAP)(2) |
$ 3.6 | $ 4.5 | $ 5.7 | $ 5.5 | ||||||||||||
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| (1) | The BCG 75% Case assumes that 75% of the productivity cost reductions described above would be attained. |
| (2) | Operating income (non-GAAP) excludes amortization of intangibles, severance and facility actions and acquisition-related costs. |
As discussed under “—Background of the Merger” beginning on page 20, BCG was engaged to act as a consultant to the Special Committee pursuant to an engagement letter dated November 12, 2012. The Special Committee determined to retain BCG based on BCG’s reputation as a nationally recognized management consultant, its expertise in business strategy, its experience with the industries in which the Company operates and its familiarity with the Company. Under the terms of its engagement, the Company agreed to pay BCG a fixed fee of $297,000 per week, inclusive of all of BCG’s expenses, during the term of its engagement. BCG’s
compensation in connection with its engagement is not based on the Special Committee’s recommendation as to any specific strategic alternative available to the Company or the completion of any specific transaction, including the merger. BCG has consented to the inclusion of its presentations to the Board and the Special Committee as exhibits to the Schedule 13E-3 filed with the SEC in connection with the merger.
During the past two years, BCG has provided management consulting services to the Company and its affiliates, for which BCG has received an aggregate of approximately $1.5 million in compensation, and has also provided management consulting services to the SLP Investors and their affiliates, for which BCG has received an aggregate of approximately $0.8 million in compensation. BCG has not had any material relationship with the Parent Parties, the MD Investors or their affiliates (other than as described in the foregoing sentence with respect to the Company and its affiliates) or with the MSDC Investor or its affiliates during the past two years.
Parent estimates that the total amount of funds necessary to complete the merger and the related transactions and financings, including (i) the refinancing of certain of the Company’s indebtedness outstanding as of the closing of the merger and (ii) the payment of related fees and expenses, will be approximately $28 billion.
Parent expects this amount to be funded through a combination of the following:
| • | an aggregate cash equity investment by the SLP Investors and their permitted assignees, if any, of up to $1.4 billion, which is described under “—SLP Investors Equity Financing” beginning on page 103; |
| • | (i) the contribution by the MD Investors of shares of Common Stock to Parent immediately prior to the effective time of the merger and (ii) a cash equity investment by Mr. Dell and his permitted assignees, if any, of up to $500 million, which are collectively described under “—MD Investors Equity Financing” beginning on page 103; |
| • | a cash equity investment by the MSDC Investor and its permitted assignees, if any, of up to $250 million, which is described under “—MSDC Investor Equity Financing” beginning on page 104; |
| • | the sale by Parent of up to $2 billion of its 7.25% unsecured subordinated notes to Microsoft, which is described under “—Subordinated Debt Financing” beginning on page 105; |
| • | up to approximately $13.75 billion from the debt financings described under “—Debt Financing” beginning on page 105; and |
| • | at least approximately $7.4 billion of cash on hand at the Company and its subsidiaries. |
The cash equity investments, contribution of shares of Common Stock, sale of unsecured subordinated notes and debt financings are subject to the satisfaction of the conditions set forth in the commitment letters and/or securities purchase agreement, as applicable, described below. Although obtaining the equity or debt financing is not a condition to the completion of the merger, the failure of the Parent Parties to obtain sufficient financing or the failure of the Company to have a sufficient amount of cash on hand at the effective time of the merger would likely result in the failure of the merger to be completed. However, pursuant to the merger agreement, the Company has the right to specifically enforce the Parent Parties’ obligations to use reasonable best efforts to obtain, or cause to be obtained, the financing and to timely cause the Lenders (as defined below) to fund the debt financing and Microsoft to fund the subordinated debt financing, including by seeking through litigation to enforce their rights under the debt commitment letter entered into with the Lenders and the securities purchase agreement entered into with Microsoft under the circumstances described under “The Merger Agreement—Specific Performance” beginning on page 165. In each case, Parent may be obligated to pay the Company certain fees as described under “The Merger Agreement—Termination Fees; Reimbursement of Expenses” beginning on page 163. Payment of such fees is guaranteed by the guarantors as described under “—Limited Guarantees” beginning on page 111.
SLP Investors Equity Financing
Parent has entered into a letter agreement with the SLP Investors (the “SLP equity commitment letter”) pursuant to which the SLP Investors have committed, severally but not jointly, upon the terms and subject to the conditions contained in the SLP equity commitment letter, to contribute to Parent, at or prior to the consummation of the merger, an aggregate of up to $1.4 billion in cash in exchange for which the SLP Investors will receive common stock of Parent. The SLP Investors may assign their equity commitment to other investors, subject to the terms and conditions of the SLP equity commitment letter, although no assignment of the equity commitment to other investors will affect the SLP Investors’ equity financing commitments pursuant to the SLP equity commitment letter.
The equity commitment of the SLP Investors is generally subject to the following conditions:
| • | satisfaction or waiver by the Parent Parties of the conditions precedent to the Parent Parties’ obligations to complete the merger; |
| • | the substantially contemporaneous funding of all commitments with respect to the equity financing pursuant to the MD equity commitment letter and the MSDC equity commitment letter; |
| • | the substantially contemporaneous completion of Parent’s sale to Microsoft of Parent’s unsecured subordinated notes on the terms and conditions in the securities purchase agreement; and |
| • | the substantially contemporaneous closing of the debt financing on the terms and conditions as described in the debt commitment letter. |
As described under “The Merger Agreement—Specific Performance” beginning on page 165, the Company is an express third-party beneficiary of the SLP equity commitment letter solely in the limited circumstances specified in the merger agreement in which the Company is entitled to seek specific performance of Parent’s obligation to cause the equity financing contemplated by the SLP equity commitment letter to be funded.
The foregoing summary of the SLP equity commitment letter is qualified in its entirety by reference to the copy of such letter attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.
MD Investors Equity Financing
Parent has entered into a letter agreement with the MD Investors (the “MD equity commitment letter”) pursuant to which the MD Investors have committed, severally and not jointly, to transfer, contribute and deliver to Parent, immediately prior to the consummation of the merger, 273,299,383 shares of the Common Stock (including shares held by the Gift Trusts, which shares will be acquired by Mr. Dell from the Gift Trusts prior to the consummation of the merger (conditional upon the occurrence of the closing of the merger)) in exchange for common stock of Parent. For purposes of such transfer and contribution, the MD Investor’s shares of Common Stock will be valued at $13.36 per share as opposed to the $13.65 price offered to the Company’s unaffiliated stockholders in the merger. In addition, Mr. Dell committed, upon the terms and subject to the conditions contained in the MD equity commitment letter, to contribute to Parent, at or prior to the consummation of the merger, an aggregate of up to $500 million in cash in exchange for which he will receive common stock of Parent. Mr. Dell may assign his cash equity commitment to other investors subject to the terms and conditions of the MD equity commitment letter, although no assignment of his cash equity commitment to other investors will affect Mr. Dell’s cash equity financing commitment pursuant to the MD equity commitment letter.
The commitments of the MD Investors are generally subject to the following conditions:
| • | satisfaction or waiver by the Parent Parties of the conditions precedent to the Parent Parties’ obligations to complete the merger; |
| • | the substantially contemporaneous funding of all commitments with respect to the equity financing pursuant to the SLP equity commitment letter; |
| • | the substantially contemporaneous completion of Parent’s sale to Microsoft of Parent’s unsecured subordinated notes on the terms and conditions in the securities purchase agreement; and |
| • | the substantially contemporaneous closing of the debt financing on the terms and conditions as described in the debt commitment letter. |
As described under “The Merger Agreement—Specific Performance” beginning on page 165, the Company is an express third-party beneficiary of the MD equity commitment letter solely in the limited circumstances specified in the merger agreement in which the Company is entitled to seek specific performance of Parent’s obligation to cause the rollover and equity financing contemplated by the MD equity commitment letter to be funded.
The foregoing summary of the MD equity commitment letter is qualified in its entirety by reference to the copy of such letter attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.
MSDC Investor Equity Financing
Parent has entered into a letter agreement with the MSDC Investor (the “MSDC equity commitment letter”) pursuant to which the MSDC Investor has committed, upon the terms and subject to the conditions contained in the MSDC equity commitment letter, to contribute to Parent, at or prior to the consummation of the merger, an aggregate of up to $250 million in cash in exchange for which the MSDC Investor will receive common stock of Parent. The MSDC Investor may assign its equity commitment to other investors subject to the terms and conditions of the MSDC equity commitment letter, although no assignment of the equity commitment to other investors will affect the MSDC Investor’s equity financing commitment pursuant to the SLP equity commitment letter.
The equity commitment of the MSDC Investor is generally subject to the following conditions:
| • | satisfaction or waiver by the Parent Parties of the conditions precedent to the Parent Parties’ obligations to complete the merger; |
| • | the substantially contemporaneous funding of all commitments with respect to the equity financing pursuant to the SLP equity commitment letter; |
| • | the substantially contemporaneous completion of Parent’s sale to Microsoft of Parent’s unsecured subordinated notes on the terms and conditions in the securities purchase agreement; and |
| • | the substantially contemporaneous closing of the debt financing on the terms and conditions as described in the debt commitment letter. |
As described under “The Merger Agreement—Specific Performance” beginning on page 165, the Company is an express third-party beneficiary of the MSDC equity commitment letter solely in the limited circumstances specified in the merger agreement in which the Company is entitled to seek specific performance of Parent’s obligation to cause the equity financing contemplated by the MSDC equity commitment letter to be funded.
The foregoing summary of the MSDC equity commitment letter is qualified in its entirety by reference to the copy of such letter attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.
Subordinated Debt Financing
Parent has entered into an amended and restated securities purchase agreement with Microsoft (the “securities purchase agreement”) pursuant to which Parent has agreed to issue, and Microsoft has agreed to purchase, up to $2 billion of 7.25% unsecured subordinated notes of Parent contemporaneously with the closing of the merger.
The commitment of Microsoft to purchase the notes is generally subject to the following conditions:
| • | the representations and warranties of Parent in the securities purchase agreement are true and correct in all material respects; |
| • | the representations of warranties made by the Company in the merger agreement, as are material to the interests of Microsoft in its capacity as a holder of the notes, are true and correct (provided that this condition to the obligations of Microsoft is only applicable to the extent that the Parent Parties would have the right to terminate their obligations under the merger agreement as a result of a breach of such representations and warranties); |
| • | the performance in all material respects of Parent’s covenants contained in the securities purchase agreement; |
| • | the absence of any amendment or modification to the merger agreement or the granting of any waiver or consent with respect to the Parent Parties’ obligation to consummate the merger in a manner materially adverse to Microsoft in its capacity as a holder of the notes; |
| • | subject to certain limitations, the absence of a Company material adverse effect since November 2, 2012; |
| • | the substantially simultaneous funding of certain commitments with respect to equity financing pursuant to the SLP equity commitment letter and the MD equity commitment letter; |
| • | the substantially contemporaneous closing of the debt financing on the terms and conditions as described in the debt commitment letter; and |
| • | the substantially simultaneous closing of the merger pursuant to the terms of the merger agreement. |
Pursuant to the securities purchase agreement, Microsoft agreed to cease any existing discussions or negotiations regarding the acquisition of the Company or for any acquisition of Common Stock. In addition, Microsoft agreed not to (i) solicit, initiate, knowingly encourage, participate in, or otherwise encourage any inquiries, (ii) provide equity or debt financing or (iii) engage in certain other acts, in each case which could reasonably be expected to lead to the acquisition of the Company or the acquisition of shares of Common Stock by a third party.
The foregoing summary of the securities purchase agreement is qualified in its entirety by reference to the copy of such agreement attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.
Debt Financing
Intermediate has obtained a second amended and restated facilities commitment letter (as amended from time to time in accordance with the merger agreement, the “debt commitment letter”) from Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank PLC, Credit Suisse AG, Credit Suisse Securities (USA) LLC, Royal Bank of Canada, RBC Capital Markets, Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Island Branch, Morgan Stanley Senior Funding, Inc., UBS Loan Finance LLC, BNP Paribas and HSBC Bank USA, N.A. (collectively, the “Lenders”) to provide, severally but not jointly, upon the terms and subject to the conditions set forth in the debt commitment letter, in the aggregate up to $13.75 billion
in debt financing (not all of which is expected to be drawn at the closing of the merger), consisting of the following:
| • | $4.0 billion senior secured term loan B facility; |
| • | $1.5 billion senior secured term loan C facility; |
| • | $2.0 billion asset-based revolving credit facility; |
| • | $3.25 billion pursuant to first lien and second lien bridge facilities (which would be utilized in the event that Merger Sub or one or more of its subsidiaries does not issue and sell the full amount of the first lien and second lien notes referred to below at or prior to the closing of the merger); |
| • | $1.9 billion pursuant to a term/commercial receivables facility; and |
| • | $1.1 billion pursuant to a revolving/consumer receivables facility. |
It is also expected that, at or prior to the closing of the merger, up to $3.25 billion in aggregate principal amount of first and second lien notes will be issued by Merger Sub or one or more of its subsidiaries in an offering conducted under Rule 144A of the Securities Act of 1933, as amended, (the “Securities Act”), or another private placement transaction. We refer to the financing described above collectively as the “debt financing.” The aggregate principal amount of the term loan facilities and the bridge facilities (or the first and second lien notes, as the case may be) may be increased to fund certain original issue discount or upfront fees in connection with the debt financing. The proceeds of the debt financing will be used (i) to finance, in part, the payment of the amounts payable under the merger agreement, the refinancing of certain of the Company’s indebtedness outstanding as of the closing of the merger and the payment of related fees and expenses, (ii) to provide ongoing working capital and (iii) for other general corporate purposes of the Company and its subsidiaries.
The debt financing contemplated by the debt commitment letter is conditioned on the consummation of the merger in accordance with the merger agreement, as well as other customary conditions, including, but not limited to:
| • | the execution and delivery by the borrowers and guarantors of definitive documentation, consistent with the debt commitment letter; |
| • | the consummation of the SLP Investors equity financing, the MD Investors equity financing, the MSDC Investor equity financing and the Microsoft subordinated debt financing substantially concurrently with the initial borrowing under the term loan facilities; |
| • | subject to certain limitations the absence of a Company material adverse effect since November 2, 2012; |
| • | payment of all applicable fees and expenses; |
| • | delivery of certain audited, unaudited and pro forma financial statements; |
| • | as a condition to the availability of the bridge facilities, the agents having been afforded a marketing period of at least 15 consecutive business days (subject to certain blackout dates) following receipt of portions of a customary offering memorandum and certain financial statements; |
| • | receipt by the lead arrangers of documentation and other information about the borrower and guarantors required under applicable “know your customer” and anti-money laundering rules and regulations (including the PATRIOT Act); |
| • | subject to certain limitations, the execution and delivery of guarantees by the guarantors and the taking of certain actions necessary to establish and perfect a security interest in specified items of collateral; |
| • | the repayment of certain outstanding debt of the Company; and |
| • | the accuracy in all material respects of certain representations and warranties in the merger agreement and specified representations and warranties in the loan documents. |
If any portion of the debt financing becomes unavailable on the terms and conditions contemplated by the debt commitment letter, Parent is required to promptly notify the Company and use its reasonable best efforts to obtain alternative financing (in an amount sufficient to replace such unavailable debt financing) from the same or other sources on terms and conditions no less favorable to the Parent Parties than such unavailable debt financing (including the “flex” provisions contained in the fee letter referenced in the debt commitment letter). As of May 22, 2013, the last practicable date before the printing of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing is not available as anticipated. Except as described herein, there is no plan or arrangement regarding the refinancing or repayment of the debt financing. The documentation governing debt financing contemplated by the debt commitment letter has not been finalized and, accordingly, the actual terms of the debt financing may differ from those described in this proxy statement.
The Lenders may invite other banks, financial institutions and institutional lenders to participate in the debt financing contemplated by the debt commitment letter and to undertake a portion of the commitments to provide such debt financing.
Term Facilities
Interest under (i) the senior secured term loan B facility will be payable, at the option of the borrower, either at a base rate (subject to a floor of 2.0% and based on the highest of the prime rate, the overnight federal funds rate plus 1/2 of 1.0% and the one-month LIBOR rate plus 1.00%) plus 2.50% or a LIBOR-based rate (subject to a floor of 1.0%) plus 3.50% and (ii) the senior secured term loan C facility will be payable, at the option of the borrower, either at a base rate (subject to a floor of 2.0% and based on the highest of the prime rate, the overnight federal funds rate plus 1/2 of 1.0% and the one-month LIBOR rate plus 1.00%) plus 2.0% or a LIBOR-based rate (subject to a floor of 1.0%) plus 3.0%. Interest will be payable, in the case of loans bearing interest based on LIBOR, at the end of each interest period set forth in the credit agreement (but at least every three months) and, in the case of loans bearing interest based on the base rate, quarterly in arrears. The senior secured term loan B facility will mature six and one-half years from the date of closing of the merger and will amortize in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount. The senior secured term loan C facility will mature five years from the date of closing of the merger and will amortize in equal quarterly installments in aggregate annual amounts equal to 10.0% of the original principal amount.
The borrower under the term loan facilities will be Merger Sub or one of its subsidiaries, and upon consummation of the merger, the rights and obligations under the senior secured term loan B facility and the senior secured term loan C facility will be assumed by one of the Company’s subsidiaries. The senior secured term loan B facility and the senior secured term loan C facility will be guaranteed, subject to certain agreed upon exceptions, on a joint and several basis by Intermediate and each direct and indirect wholly-owned U.S. subsidiary of the Company. The senior secured term loan B facility and the senior secured term loan C facility will be secured, subject to certain agreed upon exceptions, by (i) a first priority security interest in substantially all the assets of Intermediate, Merger Sub (and, after the merger, the Company) and each guarantor (other than the ABL collateral referred to below) and (ii) a second priority security interest in the ABL collateral (as defined below).
The term loan facilities will contain customary affirmative covenants including, among other things, delivery of annual audited and quarterly unaudited financial statements, notices of defaults, material litigation and material ERISA events, submission to certain inspections, maintenance of property and customary insurance, payment of taxes and compliance with laws and regulations. The term facilities also will contain customary negative covenants that, subject to certain exceptions, qualifications and “baskets,” generally will limit the borrower’s and its restricted subsidiaries’ ability to incur debt, create liens, make fundamental changes, enter into asset sales and sale-and-lease back transactions, make certain investments and acquisitions, pay dividends or distribute or redeem certain equity, prepay or redeem certain debt and enter into certain transactions with affiliates.
ABL Facility
Interest under the asset-based revolving credit facility will be payable, at the option of borrower, either at a base rate (based on the highest of the prime rate, the overnight federal funds rate plus 1/2 of 1.0% and the one-month LIBOR rate plus 1.00%) plus 0.75% or a LIBOR-based rate plus 1.75%, with stepdowns and stepups by 0.25%, each based on excess availability. Interest will be payable, in the case of loans bearing interest based on LIBOR, at the end of each interest period set forth in the credit agreement (but at least every three months) and, in the case of loans bearing interest based on the base rate, quarterly in arrears. The asset-based revolving credit facility will mature five years from the date of closing of the merger. Borrowings under the asset-based revolving credit facility will be subject to availability under a borrowing base which, subject to certain reserves to be agreed, will consist of (i) 85% of the appraised net orderly liquidation value of eligible inventory, (ii) 85% of eligible accounts receivable and (iii) 90% of eligible credit card receivables.
The borrower under the asset-based revolving credit facility will be Merger Sub or one of its subsidiaries, and upon consummation of the merger, the rights and obligations under the asset-based revolving credit facility will be assumed by one of the Company’s subsidiaries. The asset-based revolving credit facility will be guaranteed, subject to certain agreed upon exceptions, on a joint and several basis by Intermediate and each direct and indirect wholly-owned U.S. subsidiary of the Company. The asset-based revolving credit facility will be secured, subject to certain agreed upon exceptions, by (i) a first priority security interest in the accounts receivable, inventory, cash, deposit accounts, securities and commodity accounts and certain items in connection therewith of Intermediate, Merger Sub (and, after the merger, the Company) and each guarantor, which, collectively, we refer to as the “ABL collateral” and (ii) a third priority security interest in the collateral for the senior secured term loan B facility and the senior secured term loan C facility (other than the ABL collateral).
The asset-based revolving credit facility will contain customary affirmative covenants including, among other things, delivery of annual audited and quarterly unaudited financial statements, notices of defaults, material litigation and material ERISA events, submission to certain inspections, maintenance of property and customary insurance, payment of taxes and compliance with laws and regulations. The asset-based revolving credit facility will also contain customary negative covenants that, subject in each case to certain exceptions, qualifications and “baskets,” generally will limit the borrower’s and its restricted subsidiaries’ ability to incur debt, create liens, make fundamental changes, enter into asset sales and sale-and-lease back transactions, make certain investments and acquisitions, pay dividends or distribute or redeem certain equity, prepay, purchase or redeem certain debt and enter into certain transactions with affiliates.
Bridge Facilities
The borrower under the senior first lien bridge facility will be Merger Sub or one of its subsidiaries, and upon consummation of the merger, the rights and obligations under the senior first lien bridge facility will be assumed by one of the Company’s subsidiaries. Interest under the senior first lien bridge facility will initially equal the LIBOR-based rate for interest periods of one, two, three or six months, as selected by the borrower (subject to a 1.0% floor), plus 4.0%, increasing by 50 basis points every three months thereafter up to a cap. The senior first lien bridge facility will be guaranteed by the same entities that guarantee the senior secured term loan B facility and the senior secured term loan C facility. The senior first lien bridge facility will be secured by the same assets (on an equal priority basis) that secure the senior secured term loan B facility and the senior secured term loan C facility.
Any loans under the senior first lien bridge facility that are not paid in full on or before the first anniversary of the closing date of the merger will automatically be converted into senior first lien term loans maturing seven years after the closing date of the merger. After such a conversion, the holders of outstanding senior first lien term loans may choose, subject to certain limitations, to exchange their loans for senior first lien exchange notes that mature seven years after the closing date of the merger.
The senior first lien bridge facility is expected to contain incurrence-based negative covenants that, subject to certain exceptions, qualifications and “baskets,” will restrict, among other things, the borrower’s, its guarantors’ and other restricted subsidiaries’ ability to incur debt, create liens, enter into asset sales, pay dividends and enter into transactions with affiliates, affirmative covenants to deliver annual and quarterly financial statements and provide notices of default, and such other affirmative and negative covenants as are customary for bridge loan financings of this type and consistent with Rule 144A “for life” high yield indentures of comparable issuers.
The borrower under the senior second lien bridge facility will be Merger Sub or one of its subsidiaries, and upon consummation of the merger, the rights and obligations under the senior second lien bridge facility will be assumed by one of the Company’s subsidiaries. Interest under the senior second lien bridge facility will initially equal the LIBOR-based rate for interest periods of one, two, three or six months, as selected by the borrower, (subject to a 1.0% floor) plus 5.25%, increasing by 50 basis points every three months thereafter up to a cap. The senior first lien bridge facility will be guaranteed by the same entities that guarantee the senior secured term loan B facility and the senior secured term loan C facility. The senior second lien bridge facility will be secured by the same assets (on a second priority basis) that secure the senior secured term loan B facility and the senior secured term loan C facility.
Any loans under the senior second lien bridge facility that are not paid in full on or before the first anniversary of the closing date of the merger will automatically be converted into senior second lien term loans maturing eight years after the closing date of the merger. After such a conversion, the holders of outstanding senior second lien term loans may choose, subject to certain limitations, to exchange their loans for senior second lien exchange notes that mature eight years after the closing date of the merger.
The senior second lien bridge facility is expected to contain incurrence-based negative covenants that, subject to certain exceptions, qualifications and “baskets,” will restrict, among other things, the borrower’s, its guarantors’ and other restricted subsidiaries’ ability to incur debt, create liens, enter into asset sales, pay dividends and enter into transactions with affiliates, affirmative covenants to deliver annual and quarterly financial statements and provide notices of default, and such other affirmative and negative covenants as are customary for bridge loan financings of this type and consistent with Rule 144A “for life” high yield indentures of comparable issuers.
It is expected that, in lieu of borrowings under the senior secured first and second lien bridge facilities, at or prior to the closing of the merger, up to $3.25 billion of aggregate principal amount of first and second lien notes will be issued by Merger Sub or one or more of its subsidiaries in an offering conducted under Rule 144A of the Securities Act, or another private placement transaction.
Term/Commercial Receivables Facility
The lenders under the term/commercial receivables facility will include certain of the Lenders and/or one or more commercial paper conduits with backstop funding commitments from one or more of the Lenders. Interest under the term/commercial receivables facility will be payable at a variable interest rate which, in the case of a commercial paper conduit lender, will be such lender’s cost of funds in the commercial paper market plus a usage fee or, if funding through its backstop funding commitments, one-month LIBOR plus 1.75%, and, in the case of any other lender, will be daily one-month LIBOR plus a usage fee. The usage fee will be 1.00% per annum, increasing to 1.75% per annum after the end of the commitment term. Interest will be payable monthly.
The commitment term under the term/commercial receivables facility will be three years from the date of the closing of the merger and the term/commercial receivables facility will mature in the twelfth month after the due date of the latest installment payment due under any receivable being funded at the end of the commitment term.
The receivables to be financed under the term/commercial receivables facility will be fixed-rate, fixed-term sales-type leases and loans originated by DFS. The receivables will be required to satisfy certain eligibility criteria. Borrowings under the term/commercial receivables facility will be subject to availability under a
borrowing base. The advance rate will generally be 85% of the discounted percent value of the periodic payments due under the eligible receivables. The discount will be based on the borrower’s cost of funds, hedging costs and servicing expenses.
The borrower under the term/commercial receivables facility will be a newly-organized special purpose bankruptcy-remote subsidiary of the Company established to purchase the receivables on a periodic basis. DFS will act as the servicer of the receivables. Merger Sub and, upon consummation of the merger, the Company will provide a performance undertaking to the borrower and the lenders ensuring the performance and obligations (including the payment obligations) of DFS as servicer and of the subsidiary of the Company acting as the seller of the receivables to the borrower.
The term/commercial receivables facility will be secured by a first priority security interest in the receivables, related property and the proceeds thereof.
The term/commercial receivables facility will contain customary affirmative covenants, including, among other things, maintenance of existence, further assurances and filing financing statements, maintenance of books and records, delivering unaudited annual financial statements of the borrower and annual audited and quarterly unaudited financial statements of the Company, inspection rights, notice of certain events, payment of taxes and compliance with laws and regulations. The term/commercial receivables facility will also contain customary negative covenants that will generally limit the borrower’s ability to incur any debt other than under the term/commercial receivables facility, create liens other than under the term/commercial receivables facility, engage in activities other than in connection with the term/commercial receivables facility or like financings, asset sales, mergers, consolidations or dissolutions, pay dividends or make other payments in respect of equity interests after the occurrence of certain events and make certain petitions in bankruptcy against the borrower or the commercial paper conduit lenders.
Revolving/Consumer Receivables Facility
The lenders under the revolving/consumer receivable facility will include certain of the Lenders and/or one or more commercial paper conduits with backstop funding commitments from one or more of the Lenders. Interest under the revolving/consumer receivables facility will be payable at a variable interest rate that will depend on the type of lender: its cost of its funds in the commercial paper market plus a usage fee or, if funding through its backstop funding commitments, one-month LIBOR plus 2.25%, in the case of a commercial paper conduit lender, or daily one-month LIBOR plus a usage fee, in the case of any other lender. The usage fee will be 1.75% per annum, increasing to 2.50% per annum after the end of the commitment term. Interest will be payable monthly.
The commitment term under the revolving/consumer receivables facility will be three years from the date of the closing of the merger and the revolving/consumer receivables facility will mature in the twelfth month after the end of the commitment term.
The receivables to be financed under the revolving/consumer receivables facility will be finance charge receivables and principal receivables arising under revolving credit accounts established under the “Dell Preferred Account” program (“Consumer Credit Accounts”) or the “Dell Business Credit” program (“Business Credit Accounts”). The receivables will be required to satisfy certain eligibility criteria. Borrowings under the revolving/consumer receivables facility will be subject to availability under a borrowing base. The advance rate will generally be 60% of the principal receivables arising under the Consumer Credit Accounts and 85% of the principal receivables arising under the Business Credit Accounts.
The borrower under the revolving/consumer receivables facility will be a newly-organized special purpose bankruptcy-remote subsidiary of the Company established to purchase the receivables on a daily basis as they are originated. DFS will act as the servicer of the receivables and the administrator of the borrower. Merger Sub, and
upon consummation of the merger, the Company will provide a performance undertaking to the borrower and the lenders ensuring the performance and obligations (including the payment obligations) of DFS as servicer and administrator and of the subsidiary of the Company acting as the seller of the receivables to the borrower.
The revolving/consumer receivables facility will be secured by a first priority security interest in the receivables, related property and the proceeds thereof.
The revolving/consumer receivables facility will contain customary affirmative covenants, including, among other things, maintenance of existence, further assurances and filing financing statements, maintenance of books and records, delivering unaudited annual financial statements of the borrower and annual audited and quarterly unaudited financial statements of the Company, inspection rights, notice of certain events, payment of taxes and compliance with laws and regulations. The revolving/consumer receivables facility will also contain customary negative covenants that will generally limit the borrower’s ability to incur debt other than under the revolving/consumer receivables facility, create liens other than under the revolving/consumer receivables facility, engage in activities other than in connection with the revolving/consumer receivables facility, asset sales, mergers, consolidations or dissolutions, pay dividends or make other payments in respect of equity interests after the occurrence of certain events and make certain petitions in bankruptcy against the borrower or the commercial paper conduit lenders.
The foregoing summaries of the debt commitment letter and the related facilities are qualified in their entirety by reference to the copy of such letter attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.
Refinancing of Certain Indebtedness
The Parent Parties expect that the aggregate amounts of principal, interest and premiums necessary to redeem in full the Company’s outstanding $500 million in aggregate principal amount of 5.625% Senior Notes due April 2014, the Company’s outstanding $400 million in aggregate principal amount of 2.10% Senior Notes due April 2014 and, unless the effective time of the merger occurs after their maturity, the Company’s outstanding $500 million in aggregate principal amount of 1.40% Senior Notes due September 2013 will be deposited with the respective trustees for such notes substantially concurrently with the effective time of the merger and notices to redeem in full such notes will be sent to the holders of such outstanding notes on the closing date. The Parent Parties further expect that all of the Company’s other outstanding senior notes and senior debentures will remain outstanding after the effective time of the merger in accordance with their respective terms. All principal, accrued but unpaid interest, fees and other amounts (other than certain contingent obligations) outstanding at the effective time of the merger under the Company’s $2 billion unsecured revolving credit facility will be repaid in full substantially concurrently with the closing and all commitments to lend and guarantees in connection therewith will be terminated and/or released.
Concurrently with the execution of the merger agreement, each of the SLP Investors and Mr. Dell (collectively, the “guarantors”) have executed and delivered a limited guarantee in favor of the Company (collectively, the “limited guarantees”), pursuant to which the guarantors have absolutely, unconditionally and irrevocably guaranteed the due, complete and punctual payment, observance, performance and discharge of their respective applicable percentage of the payment obligations of Parent with respect to certain fees (each as described in more detail under “The Merger Agreement—Termination Fees; Reimbursement of Expenses—Parent Termination Fee” beginning on page 164) and certain other guaranteed amounts, subject to a cap equal to, in the aggregate, the Parent termination fee, if and when due pursuant to the merger agreement.
Each of the limited guarantees will terminate upon the earliest to occur of:
| • | the effective time of the merger, |
| • | payment in full of the Parent termination fee or the cash shortfall fee and the other guaranteed amounts, in each case pursuant to the merger agreement; and |
| • | the six-month anniversary of the valid termination of the merger agreement in accordance with its terms (except if any claim for payment pursuant to a limited guarantee is presented in writing by the guaranteed party to Parent or a guarantor on or prior to such six-month anniversary, in which case such limited guarantee will not terminate until final resolution of such claim). |
In the event that the Company or any of its affiliates (other than the MD Investors, the Gift Trusts or the MSDC Investor) asserts in any litigation or other proceeding (i) that certain provisions of a limited guarantee are illegal, invalid or unenforceable or (ii) any theory of liability against a guarantor, any Parent Party or certain related parties of such guarantor with respect to such limited guarantee, the commitment letter to which such guarantor is a party, the merger agreement or any of the transactions contemplated thereby (other than certain specified permitted claims), then (a) the obligations of such guarantor under such limited guarantee will terminate, (b) if such guarantor has previously made any payments under such limited guarantee, it will be entitled to recover such payments and (c) neither such guarantor nor certain related parties of such guarantor will have any liability to the Company with respect to the transactions contemplated by the merger agreement under such limited guarantee or otherwise.
